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Better Buy: Vertex Pharmaceuticals vs. Galapagos

If you only looked at year-to-date performance, Galapagos (NASDAQ: GLPG) would be a slam-dunk pick over Vertex Pharmaceuticals (NASDAQ: VRTX). Galapagos is up more than 70% so far this year, while Vertex has achieved only a single-digit percentage gain.

But choosing a stock based on its recent performance isn't a smart move. It's much wiser to evaluate the underlying growth prospects for each stock before making a decision. With that in mind, here's how Vertex and Galapagos stack up against each other.

Image source: Getty Images.

The case for Vertex

Vertex dominates the cystic fibrosis (CF) market with its three approved drugs Kalydeco, Orkambi, and Symdeko. These drugs propelled the biotech to 25% year-over-year revenue growth in the second quarter. But even stronger growth is likely on the way.

The company expects U.S. Food and Drug Administration (FDA) approval of a triple-drug CF combination therapy by March 19, 2020. This combo will expand the number of patients eligible for Vertex's CF therapies by more than 50%. Market research EvaluatePharma views Vertex's combo of VX-445 (elexacaftor), tezacaftor, and ivacaftor as the most valuable pipeline drug in development with the potential to generate sales of $4.3 billion by 2024.

If Vertex was only focused on CF, the biotech would have a tremendous runway for growth. But it isn't just focused on this one disease. Vertex's most advanced non-CF program in clinical development targets pain management. The company has completed multiple phase 2 studies in treating acute, neuropathic, and musculoskeletal pain. Vertex plans to use clinical data from several compounds to pick the best molecule or molecules to advance into late-stage clinical testing.

The biotech is also targeting several rare genetic diseases in early stage clinical studies. Vertex is advancing VX-814 into a phase 2 study for the treatment of alpha-1 antitrypsin (AAT) deficiency. It partnered with CRISPR Therapeutics to develop gene-editing treatments for rare blood diseases beta-thalassemia and sickle cell disease as well as genetic diseases Duchenne muscular dystrophy and myotonic dystrophy type 1.

Vertex has also put its growing cash stockpile to use in acquiring additional programs. The company announced earlier this month that it's buying privately held Semma Therapeutics for $950 million. Semma has a preclinical program focused on developing a cure for type 1 diabetes.

The appealing thing about Vertex is that it doesn't have to succeed with all of its non-CF programs to dramatically expand its growth prospects. Just one win outside of CF would make the biotech a much hotter commodity than it already is.

The case for Galapagos

Unlike Vertex, Galapagos doesn't have any approved products on the market yet. But it has a likely blockbuster late-stage candidate on its hands with filgotinib.

Gilead Sciences (NASDAQ: GILD) licensed filgotinib from Galapagos in 2015. In addition to an upfront payment of $725 million and milestone payments of up to $1.35 billion, Galapagos will receive tiered royalties starting at 20% and a profit split in regions where the two companies co-promote the drug.

It might not be very long before those royalties and profits begin pouring in. Gilead plans to file for FDA approval for filgotinib in treating rheumatoid arthritis later this year.

The relationship between the two partners grew even closer as a result of a major expansion of their collaboration announced in July. Gilead paid $3.95 billion upfront and invested $1.1 billion in Galapagos, upping its stake in the small biotech from 12.3% to 22%. In exchange, Gilead will be able to license all of Galapagos' current and future programs everywhere outside of Europe.

In addition to rheumatoid arthritis, Galapagos is evaluating filgotinib in late-stage clinical studies targeting Crohn's disease and ulcerative colitis. The biotech also has phase 2 studies under way researching the potential for the drug to treat small bowel CD, fistulizing CD, Sjogren's syndrome, ankylosing spondylitis, psoriatic arthritis, cutaneous lupus erythematosus, lupus membranous nephropathy, and uveitis.

Galapagos' GLPG1690 is currently in late-stage clinical studies targeting the treatment of idiopathic pulmonary fibrosis (IPF). Another potential IPF therapy, GLPG1205, is in phase 2 testing. The biotech is evaluating two phase 2 candidates for treating atopic dermatitis and osteoarthritis as well.

Better buy

Investing in biotech stocks can be a risky endeavor. There's always the possibility of regulatory failure and clinical setbacks. I like the prospects for Galapagos, but I think that Vertex is much less risky and is therefore the better pick.

In my view, the odds of regulatory approval of Vertex's CF triple-drug combo look very good. This combo by itself should fuel tremendous growth for Vertex over the next several years. The jury is still out on its earlier-stage development efforts, but I wouldn't bet against Vertex. My prediction is that Vertex's success story is just beginning.

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Keith Speights owns shares of Gilead Sciences and Vertex Pharmaceuticals. The Motley Fool owns shares of and recommends Gilead Sciences. The Motley Fool owns shares of CRISPR Therapeutics. The Motley Fool recommends Vertex Pharmaceuticals. The Motley Fool has a disclosure policy.


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